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The Cost of Private Debt Over the Credit Cycle

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  • Eugen Tereanu
  • Johanna L. Francis
  • Dilek Aykut

Abstract

We identify global and regional fluctuations in international private debt flows to emerging and developing countries using data on cross border loans and international bond issuance over 1993 -2009. We estimate the effects of individual borrower characteristics as well as macroeconomic conditions on the cost of foreign borrowing and test whether these effects differ across phases of the lending cycle. We find that public and financial institutions benefit from lower spreads compared to private and nonfinancial firms and that lenders may differentiate the risk associated with the borrower’s industrial sector between good and bad times. The loan (bond) rating has an equally robust spread reduction effect across credit cycle phases. The results also suggest that international reserve holdings and investment ratios have a significant effect on reducing credit spreads for loans, while higher reserve holdings and longer maturities matter more for bond spreads.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/283.

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Length: 30
Date of creation: 01 Dec 2010
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Handle: RePEc:imf:imfwpa:10/283

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Keywords: Borrowing; Developing countries; Emerging markets; International bond markets; Manufacturing sector; Services sector; bond; private debt; bonds; private debt flows; bond issuance; bond spreads; public borrower; international bond; international bonds; international debt; bond flows; currency mismatch; international capital; sovereign debt; bond spread; debt crisis; sovereign debt crisis; external financing; international lending; reserve holdings; debt service; bond holders; bond maturity; international reserves; financial institutions; private banks; currency risk; financial intermediaries; international bank lending; market bond; short-term debt; international capital markets; access to international capital; emerging market bond; net private debt; net debtor; international banks; private debt flow; liquidity crisis; domestic debt markets; financial structure; domestic debt; current account; bilateral loans; external shocks; international interest rates; external debt; bond collateral; bond placements; financial system; sovereign default; bond issues; sovereign debt crises; external debt obligations; debt crises; financial sector; bond debt; bond contracts; bond issuances; global liquidity; foreign debt; international finance; financial systems; financial market; international financial statistics; global bond; debt obligations; repayments; market debt; current account balance; hedging;

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